The present invention relates generally to a financial business system, and more particularly to a method and apparatus for issuing a credit card secured by a savings account.
In general, banks provide two types of credit cards: secured and unsecured. An unsecured credit card is backed only by the promise of the cardholder to pay accumulated charges and interest. Unsecured credit cards are issued to individuals having a good credit rating. In contrast, a secured credit card is backed by a security interest in an asset, usually a savings account. If the cardholder defaults, the bank may take the asset to cover all or part of the debt. Secured credit cards are issued to individuals having a fair or poor credit rating or no credit rating.
The secured credit card offers an opportunity for individuals who have a poor or no credit rating to build a good credit history by regularly using the card and making at least the minimum payment each month. The credit limit for a secured credit card is typically tied to the value of the asset. For example, individuals classified as a high risk may receive a credit limit equal to the balance of the savings account, whereas individuals classified as a moderate risk may receive a credit limit equal to twice the balance of the savings account.
Credit cards are issued only to individuals who request them and agree to the terms of a cardholder agreement. Often, the process for finding customers and issuing secured credit cards proceeds as follows. A bank obtains a list of potential customers from a credit agency or other list provider. The bank, or its independent contractor, sorts these potential customers by credit risk to identify candidates for its secured credit card product. Then, the bank mails a solicitation to each candidate. The solicitation informs the candidate that the bank will issue a secured credit card, provided the candidate makes a minimum deposit in a savings account. After sending out the solicitation, the bank waits for a telephonic or written response agreeing to the terms of the cardholder agreement. If the response does not include a deposit for the savings account, the bank may send a reminder letter requesting the deposit to the savings account. Once the minimum balance is deposited, the bank issues the credit card to the customer. Under the cardholder agreement the customer may have only a limited right to make withdrawals from the savings account.
This method of acquiring customers to secure credit card products is not efficient. A substantial number of candidates respond to the solicitation, but fail to make a deposit in the savings account.